Fuyao Glass(3606 HK) FY2022 Q1 Core Earnings See Strong Performance July 19, 2022 119

PSR Recommendation: BUY Status: Upgraded
Target Price: HKD40.25

Investment Summary
Revenue Hits New High in Q1, Core Earnings See Strong Performance
According to the results report for Q1 2022, Fuyao Glass reported operating revenue of
RMB6.55 billion, up 14.8% yoy, a new record for the same period and significantly
outperforming the overall growth rate of the automobile industry (+2%). We believe that
the increase in the unit price of the Company’s products and the Company’s global
expansion of its market share against the trend are the main reasons. The Company also
reported a net profit of RMB870 million, up 1.9% yoy and up 58.4% qoq, with a growth rate
lower than that of revenue, mainly due to RMB appreciation, increasing freight charges and
the rising price of sodium carbonate, the raw material.
In Q1, the Company recorded a gross margin of 35.75%, down 4.85 ppts yoy, mainly due to
changes in accounting standards (inclusion of transportation charges in operating cost), RMB
appreciation, increasing freight charges and the rising price of sodium carbonate, the raw
material. In particular, increasing freight charges/the rising price of sodium carbonate, the
raw material/RMB appreciation caused gross margin to fall by approximately 0.76/1.1/0.81
ppts, respectively. Meanwhile, RMB appreciation led to RMB135 million of exchange loss
from financial expenses (which was only RMB70 million in the previous period). If the
impacts of such factors were ignored, the total pre-tax profit was up 24.4% approximately
yoy, and core earnings showed a strong performance.

About the author

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Zhang Jing
Phillip Securities (HK)

Bachelor Degree in Tongji University of Engineering; Master Degree in East China Normal University of finance. Currently covering the automobile and air sectors. She has years of experience in investment research and is good at combining analysis for the companies with industry prospects.

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